Donald Trump's security policy document offers a misguided assessment of Europe. The document asserts that open-border policies and so-called "woke" policies represent an existential threat to European civilization. However, this argument rests on a serious misinterpretation of the reality. The actual danger facing Europe is not cultural but technological and economic backwardness.
The Stark Growth Gap Between the US and Europe
The data reveal a sobering contrast. Between 2008 and 2023, US GDP grew by 87%, while a mere thirteen and a half percent growth for the European Union. During this time, European income per person dropped from over three-quarters to just half of the American figure. Remarkably, even Mississippi now boasts a greater average income than several leading EU nations like Italy and France.
Currently, about half of the world’s 50 largest technology firms are US-based, while a mere four are European.
The Technological Deficit: A Critical Problem
This widening disparity is driven by stronger productivity growth in the US, largely due to technological innovation and higher total factor productivity. The scene of world technology leadership is overwhelmingly American. In the last fifty years, hundreds of American startups have scaled into companies valued at more than ten billion dollars, compared with just 14 in the European continent.
This gap prompts a pressing question: As the competition for tomorrow's sectors like semiconductors, AI, and fusion energy, where does Europe stand? Most analysts agree it is largely a two-horse race between the US and China, with European nations starting at a significant disadvantage.
Root Causes of Europe's Technological Lag
A number of key reasons explain this technological divide.
- Financing Ecosystem: The United States has a far deeper and agile system for financing new ventures. Europe still lacks a genuine unified investment market, a factor that limits the scale of new firms.
- Regulatory Fragmentation: Complex and divided regulation hinder European business. A American entrepreneur can introduce a product under one regulatory framework to access a market of hundreds of millions. The EU, despite a larger population size, is divided among twenty-seven separate systems, creating significant market obstacles.
- Mindset Differences: Views on risk-taking differ sharply. In parts of Europe, business failure was once met with stigma, whereas in the US, it is often seen as a badge of experience.
- Military Investment: The US benefits from a tightly woven academic-military-industrial complex. The continent's chronic underinvestment in defense has weakened its capacity for breakthrough innovation.
A Path Forward: Grounds for Cautious Optimism
Despite these challenges, one can find causes for hope. Policymakers are increasingly aware of the existential challenge and have started to propose substantial change. Notable analyses on European competitiveness and the internal market point to the need for sweeping changes.
Given appropriate policies and rule changes, Europe's strengths might enable far greater levels of business-led breakthroughs.
Europe retains considerable advantages: high-quality workforce, excellent education systems, and premier labs. Coupled with a large internal market and substantial household savings, these foundations could unleash a surge of investment and entrepreneurship.
Importantly, even if Europe does not take the lead in creating cutting-edge tech, it can still dramatically boost productivity by implementing and tailoring advancements from elsewhere.
A Critical Juncture
Europe now stands at a critical crossroads. As the saying goes, decline often happens "gradually and then suddenly". To date, the continent's slide in innovation has been gradual. But, if it fails to take decisive action to tackle its structural weaknesses, today's gradual weakening could turn into a sudden and irreversible decline in global economic relevance.
